Pictures at an Exhibition: Small, Medium, Big Picture

CPI preview, Stagflation, Major Catalyst update & Free Money, China update

Since the Fed Meeting and the weakest jobs report since October 2023, the S&P is up +4%, the Nasdaq is up +5%, TLT is up +2% and the US10 Year has grinded below 4.5%. Oh, and Platinum is up +7%.

We give thanks.

With the Market up +5%, the VIX below 13 and the P&L nicely up, a Pavlovian reaction has triggered me to add hedges and trim the portfolio around the edges. You may even call it the Tamagotchi Shrub Reaction Function and it would look something like this:

{Market +5%} + {VIX below 13} + {P&L nicely up} => {add some hedges & trim}

This is how I see it: spending some put premium after a nice run, is the price to pay in order to stay in the game. After all, I like my portfolio and I want to protect it.

Also, people already forgot, but we had a 5% correction in April which was triggered by a hot CPI (and then the Middle East mess exacerbated the downside). I documented the week of the hot CPI in “Diary of a Madman I” . That event gave us a sweet buying opportunity that we took advantage of and documented in “Diary of a Madman II”.

Therefore, one must be prepared for anything for next week’s CPI. What if this is another hot CPI and we sell off again? Do you have cash to take advantage of it? Or did you go all-in because Goldman Sachs said that CTAs are buyers under all scenarios? (spoiler alert: Goldman Sachs doesn’t know)

On the other hand, what if this is a “cold” CPI? Following the previous weak jobs report I said:

“If the Market LOVED a weaker Job report, how will it react to a weaker Inflation Print?”

I really do believe that the Market is dying to get a “cold” inflation print. I’m not sure if it will be this one or the next one or never, but the monkeys act like they don’t want to miss it.

The Small Picture - April Inflation Print

Lets preview the upcoming Inflation Print by first laying out the setup: